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Inc. v. Morgan

United States District Court, D. Kansas

December 23, 2019

3-B CATTLE COMPANY, INC., Plaintiff,
v.
KELVIN MORGAN and SUSAN MORGAN, Defendants.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE

         Before the Court is Plaintiff 3-B Cattle Company, Inc.'s Motion for Partial Summary Judgment Against Defendants (Doc. 41). 3-B brought this action to enforce an oral settlement contract it allegedly entered into with the Morgans. 3-B now moves for partial summary judgment on its breach-of-contract claim. For the reasons stated below, the Court denies in part and grants in part 3-B's motion for summary judgment.

         I. Factual and Procedural Background[1]

         The Plaintiff, 3-B Cattle Company (“3-B”), is a corporation incorporated in Kansas. The Defendants, Kelvin and Susan Morgan, are individuals who reside and do business in Oklahoma. Jim Litton and Joe Schmitt own 3-B. Betty Litton, Jim's wife, performs bookkeeping services for 3-B. Taner Litton is one of Jim and Betty Litton's adult children and assists with 3-B's operations.

         In 2010, 3-B and the Morgans orally contracted for the Morgans to keep, graze, feed, and manage 3-B's cattle. In return, 3-B would pay the Morgans a per-head fee plus feed costs. In December 2016, the parties disputed the number of 3-B's cattle in the Morgans' possession, eventually agreeing that the Morgans had overstated the number of 3-B's cattle by 729. This resulted in 3-B overpaying the Morgans by roughly $1.2 million.[2]

         Throughout the first half of 2017, the parties negotiated the amount that the Morgans owed 3-B. These negotiations occurred through a combination of telephone calls and in-person meetings. Kelvin Morgan acknowledged that these negotiations were to settle 3-B's claims. Likewise, Susan Morgan acknowledged that she understood 3-B's offers were to settle its potential legal claims. By July 10, 2017, the parties agreed that the Morgans overstated the number of 3-B's cattle in their possession by 729, that they would compensate 3-B for the resulting fees it had overpaid, and that 3-B was willing to accept an amount less than its alleged total amount of loss as a settlement and release of its potential claims against the Morgans. As of July 10, the parties had discussed a few options concerning the amount and method of payment but had not reached a definitive agreement on these terms.

         On July 10, 2017, the parties met in Coffeyville, Kansas, to resolve the matter. Jim and Taner Litton represented 3-B. Steve George, the senior vice president of the Bank of Tescott and 3B's banker, was also present. 3-B and the Morgans orally agreed to settle the dispute by paying 3-B a lump sum of $865, 096 (the “Settlement Amount”). In return, 3-B agreed to forego the recovery of the remainder of its losses and to release the Morgans from liability.[3] The parties did not memorialize this oral agreement in writing. However, prior to the conclusion of the meeting, the Morgans signed a statement (the “Written Acknowledgment”) acknowledging the Settlement Amount and the number of cattle it had overcharged, and agreeing to pay $10, 000 of the Settlement Amount that day. The Written Acknowledged read as follows:

We're in the process of working with Frontier Farm Credit to get the funding for the full amount of $865, 096.00 owed to 3B Cattle Company for 729 head which includes interests and principal. We hope to have this resolved in 30-45 days. In the meantime, please accept our check of $10, 000.00 for good faith money which will be deducted from the total amount at the time of final payment.

         Both Kelvin and Susan Morgan signed this Written Acknowledgment without voicing any concerns or disagreements about the language.

         Neither at the July 10 meeting nor during the preceding negotiations, did the parties clearly condition the Morgans' performance on their ability to obtaining financing from Frontier Farm Credit. Nor did the parties clearly indicate that no conditions existed. Rather, the Morgans informed 3-B that they were in the process of obtaining funding and thought they would have the full amount within 30-45 days. The Morgans eventually failed to obtain financing from Frontier Farm Credit. The Morgans paid 3-B $10, 000 on July 10, 2017, but they paid no more of the alleged Settlement Amount any time thereafter.

         3-B filed this action in Kansas, in the Montgomery County District Court on July 3, 2018, seeking to enforce the alleged Settlement Agreement, or alternatively to assert claims for breach, fraud, fraud by silence, negligent misrepresentation, conversion, and replevin. The Morgans filed a lawsuit against 3-B in the District Court of Nowata County, Oklahoma, seeking declaratory judgment and an accounting. The parties removed those cases to their respective federal district courts. 3-B then filed a Motion to Transfer the case to this Court. On December 19, 2018, the U.S. District Court for the Northern District of Oklahoma granted 3-B's Motion to Transfer, consolidating the cases into the present one.[4] 3-B now seeks summary judgment on its breach of contract claim.

         II. Legal Standard

         Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law.[5]A fact is “material” when it is essential to the claim, and issues of fact are “genuine” if the proffered evidence permits a reasonable jury to decide the issue in either party's favor.[6] The movant bears the initial burden of proof and must show the lack of evidence on an essential element of the claim.[7] The nonmovant must then bring forth specific facts showing a genuine issue for trial.[8] These facts must be clearly identified through affidavits, deposition transcripts, or incorporated exhibits-conclusory allegations alone cannot survive a motion for summary judgment.[9] The court views all evidence and reasonable inferences in the light most favorable to the party opposing summary judgment.[10]

         III. Analysis

         3-B alleges it entered into an oral settlement contract with the Morgans and that the Morgans later breached the contract, resulting in damages to 3-B. The Morgans argue that the Court should deny summary judgment because the record presents multiple genuine issues of material fact as to the creation of the settlement contract and their alleged breach. The Court concludes that no genuine issue of material fact exists as to the creation of the oral settlement contract. 3-B is therefore entitled to judgment as a matter of law on that element. However, after successfully showing that a jury could reasonably interpret the facts to demonstrate the existence of a condition precedent to performance, the Morgans have met their burden to prove that genuine issues of material fact exist as to the element of breach. As such, the Court grants in part and denies in part 3-B's motion for summary judgment.

         A. Choice of Law

         “In a diversity matter, the court must apply the substantive law of the forum state, including its choice of law provisions.”[11] Kansas courts apply “the rule of lex loci contractus (the place the contract was made) in cases involving contract law.”[12] “Matters bearing upon the execution, the interpretation and the validity of a contract are determined by the law of the place where the contract is made.”[13] The issues the Court must address in this motion pertain to contract existence, validity, and interpretation. Since it is undisputed that the facts relevant to the creation of the settlement contract occurred in Kansas, the Court will apply Kansas contract law.

         The elements of a breach-of-contract claim under Kansas law are: (1) the existence of a contract; (2) sufficient consideration supporting the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff resulting from the breach.[14] The only elements contested in this motion are the existence of a settlement contract between the parties and the Morgans' subsequent breach.[15] The Court will first consider whether an oral settlement contract exists based on the undisputed facts. If the Court determines that a contract exists, it will then consider whether there is a genuine issue of material fact concerning the existence of a condition precedent to the Morgans' duty to perform.

         B. Existence of Settlement Contract

         The essential elements of a valid informal contract are: (1) A promisor and a promisee with the legal capacity to contract; (2) manifestation of assent by the parties to the terms of the contract and to the consideration for the promises; (3) sufficient consideration; and (4) lawful purpose.[16] “[W]hether undisputed facts establish the existence and terms of a contract raise a question of law for the court's determination.”[17] “When determining whether an agreement was formed, it is important to remember the key principle that ‘[t]he law favors settlement of disputes.' ”[18] Courts prefer that parties settle their disputes rather than engage in litigation.[19]Settlements need not be in writing to be enforceable.[20]

         The Morgans argue that, due to a lack of mutual assent or sufficient consideration, no settlement contract existed. It is important to note that 3-B argues that the contract it is attempting to enforce was an oral settlement agreement and that the Written Acknowledgment was not a contract, but merely strong evidence of the existence of the oral contract. The Morgans, on the other hand, attempt to confuse the issues by asserting that the Written Acknowledgment was not a valid contract. The Court agrees that the Written Acknowledgment was not a contract, but merely evidence of the existence of an oral contract. As such, the Court must determine whether the evidentiary record-including the Written Acknowledgment- creates a genuine issue of material fact regarding the existence of an oral settlement contract.

         1. ...


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